UPDATE 1-South Africa's rand flat as dollar gains, stocks fall

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* Rand muted by firm dollar

* Stocks dragged by banks (Updates prices, adds stocks and quotes)

JOHANNESBURG, Oct 3 (Reuters) - South Africa’s rand was flat in afternoon trade on Wednesday, giving up earlier gains as a solid U.S. dollar kept pressure on emerging markets, while the bourse was led lower for a second session by banks and gold stocks.

At 1508 GMT, the rand traded at 14.3600 per dollar, largely unchanged from its close of 14.3650 on Tuesday.

“It’s very muted. There is a little bit of dollar strength that is putting pressure on emerging markets,” said chief currency dealer at TreasuryOne, Wichard Cilliers.

The dollar gained on Wednesday as data supported the view that the U.S. economy is in strong shape.

Earlier in the day, the rand had gained more than 0.5 percent on improved risk appetite after Italy indicated it was open to cutting its budget deficit and debt, soothing investors’ nerves and prompting a wider move back into riskier assets.

Cilliers said the big risks for the rand in the short term were Moody’s ratings review due next week and Finance Minister Nhlanhla Nene’s medium term budget policy statement, where he is expected to unveil more details on the government plans to reprioritise expenditure and spur growth.

Having stagnated for a decade, Africa’s most industrialised economy slipped further in the second quarter, entering recession for the first time since 2009, led by declines in the agricultural, transport and retail sectors.

In fixed income, the yield on the benchmark government bond due in 2026 fell 0.5 basis points to 9.09 percent.

On the bourse, the all share index was 0.54 percent lower at 55,172 points and the top 40 index was 0.55 percent lower at 48,992 points.

Banks and gold stocks were among the biggest fallers, down 2.62 percent and 0.98 percent respectively.

Gold prices retreated from recent highs after Italy indicated it was open to cutting its budget deficit and debt, soothing investors’ nerves and prompting a wider move back into riskier assets.

Retailers also fell 0.50 percent.

“The results they have produced over the past couple of months have been subdued, especially from the food retailers. Those stocks have been pulling back,” said Kyle Burgess, portfolio manager at Nedbank Private Wealth.